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Employee Outcomes: Human Resource Management Practices and Firm Performance in Small Businesses

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[Abstract] Improving company performance is something of interest to all small business leaders. Small business leaders have many tools at their disposal — from finance to marketing to customer service — that could potentially improve the performance of their company. Among these tools is the way that small business leaders manage their people. As has been mentioned in previous reports, research has shown that people management does indeed impact company performance, even at the financial level. Studies show increases in value per employee of up to $40,000 and survival rates for IPO firms as much as 20% higher for companies that effectively manage their human resources. The Cornell University/Gevity Institute study of human resource management practices in small businesses is attempting to answer two important questions faced by small business leaders: 1. Do people contribute to the success of small businesses? 2. What human resource management strategies and practices can small business leaders employ to foster firm success? In phase two of the study, we found that employee management practices help small employers improve workforce alignment, which was defined as having the right people with the right skills in the right jobs. Firms with high levels of workforce alignment experience higher performance than firms with lower levels of workforce alignment. Building on these findings, the third phase of the study addresses the positive employee outcomes that can result from effective people management and seeks to understand which employee outcomes or behaviors tend to lead to different types of performance outcomes important to small business leaders. The results for this study were taken from a sample of 111 small companies where responses were received from both the top manager as well as the employees. Companies ranged in size from 10 to 165 employees with an average size of approximately 30 employees representing a broad range of industries. The results of the study will be presented as follows: First, we briefly discuss what is known about how human resource management impacts performance through employees. Second, we discuss the performance outcomes, and employee outcomes and behaviors that were studied as well as the specific employee behaviors and outcomes that seem to drive the different kinds of performance. Finally, we present some key takeaways from the results of this study.

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small business; human resource management; performance; practices


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